How will a Brexit affect Scottish charities?

How Scottish charities would be affected by a Brexit will depend on a number of factors, including whether the United Kingdom decides to reverse existing legislation enshrining rights or duties created during membership of the EU. As a result, there are lots of questions and very few definite answers.

Charity tax

At the present time, charities within the EU are eligible for relief from UK taxes and devolved Scottish taxes, provided that the necessary conditions are met. Similarly, tax relief is afforded to Scottish charities in other EU states. These mutual rights are also extended to Norway, Iceland and Liechtenstein.

In the event of a Brexit, Scottish charities would no longer automatically qualify for tax relief in EU states unless the EU or individual EU member states agreed to continue it. By the same token, EU charities would only qualify for tax relief in the UK or (for devolved taxes) in Scotland if Parliament or the Scottish Parliament, as the case may be, decided to keep the current rules in place.

EU grant funding

Some charities have expressed the fear that EU funding routes including the European Social Fund would be closed to them in the event of a Brexit. While this is a real risk, it is possible for the EU to make grants to non-member states. In March 2016, for example, the EU gave a substantial grant towards development work in Sri Lanka, and it would be possible for this principle to be extended more widely to all of the EU’s funding programmes. This would need a deliberate decision by the EU, and there is no certainty that this would be forthcoming.

Irrecoverable VAT

One of the taxes which charities can almost never totally avoid is VAT. The UK’s VAT system is closely aligned with equivalent taxes imposed in other EU member states. One effect of this is that the UK has limited powers to relieve charities of the burden of irrecoverable VAT on expenditure incurred. A Brexit could afford an opportunity to the Westminster Parliament to amend the VAT system in order to grant charities relief from VAT. This would be dependent upon government policy post-Brexit.

Other policy areas

A number of charities are concerned about the loss of some EU protections and policies which UK charities presently benefit from. A key example is in relation to environmental protection and conservation, where the UK has benefited from coordinated EU-wide policies covering wildlife and fish stocks, water and air quality, energy and pollution. The existence of those EU-wide standards often underpins project work carried out by environmental and conservation charities. As with the other areas mentioned above, any change in environmental or conservation policy post-Brexit would require the UK deliberately to depart from existing EU standards.

Summary

There are few hard and fast answers for the charity sector about the effects of a Brexit, but there are clearly a number of uncertainties. Even if Britons vote “OUT” on 23rd June, it will be a minimum of two years before there is clarity around all of these matters.